1 86 AGRICULTURAL ECONOMICS 



the equipments the farmer buys with the money he is really 

 securing the use of. It is the equipment which is productive. 

 That is, the farmer working with teams, tools, and machinery 

 can usually produce more than working without them. Where 

 this is true he is willing to pay for the use of these equipments. 

 Furthermore, if he has not the means of acquiring the equip- 

 ments when needed he is willing to pay a premium to have them 

 now rather than wait for them until he can earn the money with 

 which to buy them. This premium takes the form of interest 

 paid for the use of borrowed money. How much the borrower 

 is willing to pay for the advances of funds depends upon what 

 he hopes to gain by their use. This varies greatly with dif- 

 ferent people and with different investments for the same 

 people. At a given time the demand for loanable funds will 

 depend upon the number of fine prospects for investments and 

 upon the interest rate. 



Why do the lenders of money insist on charging interest? 

 Some of these money lenders are unable to direct productive 

 agencies. Widows and orphans are often given as examples of 

 this class. There are others who have more than they can 

 manage to very great advantage and who will lend the money 

 to some one else if the interest rate is better than the rate of 

 return this potential lender can make on this fund when used 

 by himself. The choice between lending and not lending is 

 not always a choice between two classes of investments; it may be a 

 choice between saving and spending. The higher the interest 

 rate the borrowers are willing to pay, the more inducement 

 there is to refrain from present consumption in order to have 

 money to invest. Some economists attempt to measure 

 interest in terms of the premium which people place upon 

 present consumption over future consumption. Familiarity 

 with the law of diminishing utility leads one to believe 

 that after an individual has satisfied present wants to a 

 certain point, future wants seem more important than the 

 unsatisfied present wants. The degree of civilization possessed 

 will determine where this point will be found. There are al- 

 ways people who will save whether or not they receive a pre- 



